November 28, 2017

China Lodging Group, Limited Reports Third Quarter of 2017 Results

  • A total of 3,656 hotels or 372,464 hotel rooms in operation as of September 30, 2017.
  • Net revenues increased 33.8% year-over-year to RMB2,373.0 million (US$356.7 million) 1 for the third quarter of 2017, at the high-end of the guidance previously announced.
  • EBITDA (non-GAAP) increased 55.4% year-over-year to RMB849.6 million (US$127.7 million) for the third quarter of 2017.
  • Net income attributable to China Lodging Group, Limited increased 60.0% year-over-year to RMB470.1 million (US$70.7 million) for the third quarter of 2017.
  • Basic earnings per ADS2 were RMB6.72 (US$1.01) and diluted earnings per ADS were RMB6.50 (US$0.98) for the third quarter of 2017. Excluding share-based compensation expenses, adjusted basic earnings per ADS (non-GAAP) were RMB6.94 (US$1.04) and adjusted diluted earnings per ADS (non-GAAP) were RMB6.71 (US$1.01) for the third quarter of 2017.
  • The Company expects the Q4 2017 net revenues growth of 29% to 32% year-over-year; and projects the full year 2017 net revenues growth of 24% to 25%

SHANGHAI, China, Nov. 28, 2017 (GLOBE NEWSWIRE) -- China Lodging Group, Limited (NASDAQ:HTHT) ("China Lodging Group", "Huazhu" or the "Company"), a leading and fast-growing multi-brand hotel group in China, today announced its unaudited financial results for the third quarter ended September 30, 2017.
                                          
Third Quarter of 2017 Operational Highlights

• During the third quarter of 2017, China Lodging Group opened 167 hotels, including 7 leased ("leased-and-operated") hotels and 160 manachised ("franchised-and-managed") hotels and franchised hotels.

The Company closed a total of 52 hotels, which included 9 leased hotels and 43 manachised and franchised hotels, during the third quarter of 2017. This was mainly due to:

   a) The Company's strategic focus to upgrade the quality of the product and service. The Company closed 13 hotels on a temporary basis for brand upgrade purposes and permanently removed 8 hotels from its network for their non-compliance with the brand and operating standards. These hotels were mainly related to the HanTing and Elan brands. By removing hotels of lower quality, the Company is able to provide a more consistent customer experience, which will help enhance both the brands and future profitability.  
   b) Property related issues, including rezoning and returning of military-owned properties, and expiry of leases, which accounted for the closure of 22 hotels.
   c) Operating losses from hotels located mainly in selected 3rd or lower tier cities which accounted for the closure of 9 hotels.

• As of September 30, 2017, the Company had 684 leased and owned hotels, 2,766 manachised hotels, and 206 franchised hotels in operation in 375 cities. The number of hotel rooms in operation totaled 372,464, an increase of 15.4% from a year ago. As of September 30, 2017, the Company had a total number of 606 hotels contracted or under construction, including 38 leased hotels and 568 manachised and franchised hotels.

• The ADR, which is defined as the average daily rate for all hotels in operation, was RMB218 in the third quarter of 2017, compared with RMB194 in the third quarter of 2016 and RMB199 in the previous quarter. The year-over-year increase of 12.1% was due to both an increase in ADR of the mature hotels, as well as an increase in the proportion of midscale and upscale hotels with higher ADR in the Company's brand mix. The sequential increase resulted mainly from seasonality.

• The occupancy rate for all hotels in operation was 93.1% in the third quarter of 2017, compared with 88.9% in the third quarter of 2016 and 90.1% in the previous quarter. The year-over-year increase of 4.2-percentage points due to improved performance across all brands as driven by strong travel demand and increasing popularity of the Company's brands. The sequential increase resulted mainly from seasonality.

• RevPAR, defined as revenue per available room for all hotels in operation, was RMB203 in the third quarter of 2017, compared with RMB173 in the third quarter of 2016 and RMB179 in the previous quarter. The year-over-year increase of 17.3% was attributable to both higher ADR and occupancy. The sequential increase resulted mainly from seasonality.

• For all hotels which had been in operation for at least 18 months, the same-hotel RevPAR was RMB193 for the third quarter of 2017, representing a 9.5% increase from RMB177 for the third quarter of 2016, with a 4.5% increase in ADR and a 4.4-percentage-point increase in occupancy rate. The midscale and upscale hotels registered a 9.5% same-hotel RevPAR improvement, driven by a 5.2% increase in ADR and a 3.6-percentage-point increase in occupancy rate. The economy hotels also registered a 9.4% same-hotel RevPAR improvement, driven by a 4.3% increase in ADR and a 4.5-percentage-point increase in occupancy rate. Crystal Orange hotels3 will not be counted in the same-hotel RevPAR sample until they are in Huazhu system for 18 months.

• As of September 30, 2017, the Company's loyalty program had approximately 97 million members, who contributed approximately 76% of room nights sold during the third quarter of 2017. In the third quarter of 2017, approximately 86% of room nights were sold through the Company's own direct channels. The strong leisure travel demands as well as the expansion of our newly launched midscale brands attract increasing bookings from third party channels.

"Fueled by strong domestic travel demand, our same-hotel RevPAR growth accelerated to 9.5% in the third quarter, the highest in the past five years. The consumption upgrade in China continued to benefit both our economy and midscale hotels. Our flagship economy brand, HanTing, recorded a same-hotel RevPAR growth of 9.8%, driven by upgraded HanTing hotels. In addition, we have also recently rolled-out new models for our other two economy hotel brands, Elan and Hi Inn. We expect our upgraded economy hotel brands will provide better customer experience." said Ms. Jenny Zhang, Chief Executive Officer of China Lodging Group.

"In September, we had completed the integration of Crystal Orange into Huazhu's platform, including operational and booking systems, membership program and back-office supports. In the third quarter, Crystal Orange hotels posted a 14.5% year-over-year growth in same-hotel RevPAR. At the end of the third quarter, midscale and upscale rooms accounted for 25% and 66% of our total room count in operation and in pipeline, respectively. " Ms. Zhang added.

Third Quarter of 2017 Financial Results

(RMB in thousands)Q3 2016Q2 2017Q3 2017
Revenues:   
Leased and owned hotels1,390,3341,543,1171,857,846
Manachised and franchised hotels373,239435,552506,720
Others10,23310,5128,445
Net revenues1,773,8061,989,1812,373,011

Net revenues for the third quarter of 2017 were RMB2,373.0 million (US$356.7 million), representing a 33.8% year-over-year increase and a 19.3% sequential increase. The year-over-year increase was primarily due to the Company's hotel network expansion, improved blended RevPAR and the acquisition of Crystal Orange.

Net revenues from leased and owned hotels for the third quarter of 2017 were RMB1,857.8 million (US$279.2 million), representing an 33.6% year-over-year increase and a 20.4% sequential increase.

Net revenues from manachised and franchised hotels for the third quarter of 2017 were RMB506.7 million (US$76.2 million), representing a 35.8% year-over-year increase and a 16.3% sequential increase. Net revenues from manachised and franchised hotels accounted for 21.4% of the Company's net revenues in the third quarter of 2017, up from 21.0% a year ago.

Other revenues represent revenues generated from other than hotel businesses, which mainly include revenues from HuaZhu mall and the provision of IT products and services to outside customers, totaling RMB8.4 million (US$1.3 million) in the third quarter of 2017.


(RMB in thousands)
Q3 2016Q2 2017Q3 2017
Operating costs and expenses:   
Hotel operating costs1,249,7011,348,2701,504,070
Other operating costs2,2583,7394,816
Selling and marketing expenses31,26445,26251,561
General and administrative expenses123,233135,689153,725
Pre-opening expenses16,71043,13467,632
Total operating costs and expenses1,423,1661,576,0941,781,804

Hotel operating costs for the third quarter of 2017 were RMB1,504.1 million (US$226.1 million), compared to RMB1,249.7 million in the third quarter of 2016 and RMB1,348.3 million in the previous quarter, representing a 20.4% year-over-year increase and an 11.6% sequential increase. Total hotel operating costs excluding share-based compensation expenses (non-GAAP) for the third quarter of 2017 were RMB1,499.6 million (US$225.4 million), representing 63.2% of net revenues, compared to 70.3% for the third quarter in 2016 and 67.6% for the previous quarter. The year-over-year decrease in the percentage was mainly attributable to the improved blended RevPAR and increased portion of manachised-and-franchised revenue. The sequential decrease was mainly due to seasonality.

Selling and marketing expenses for the third quarter of 2017 were RMB51.6 million (US$7.8 million), compared to RMB31.3 million in the third quarter of 2016 and RMB45.3 million in the previous quarter. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) for the third quarter of 2017 were RMB51.2 million (US$7.7 million), or 2.2% of net revenues, compared to 1.8% for the third quarter of 2016 and 2.3% for the previous quarter. 

General and administrative expenses for the third quarter of 2017 were RMB153.7 million (US$23.1 million), compared to RMB123.2 million in the third quarter of 2016 and RMB135.7 million in the previous quarter. General and administrative expenses excluding share-based compensation expenses (non-GAAP) for the third quarter of 2017 were RMB143.2 million (US$21.5 million), representing 6.1% of net revenues, compared with 6.5% of net revenues in the third quarter of 2016 and 6.2% in the previous quarter.

Pre-opening expenses for the third quarter of 2017 were RMB67.6 million (US$10.2 million), representing a 304.7% year-over-year increase and a 56.8% sequential increase. The year-over-year and sequential increases were mainly because more midscale or upscale leased hotels and Crystal Orange hotels were under construction in the third quarter of 2017.

Income from operations for the third quarter of 2017 was RMB591.3 million (US$88.9 million), compared to RMB351.0 million in the third quarter of 2016 and RMB442.7 million in the previous quarter. The operating margin, defined as income from operations as percentage of net revenues, for the third quarter of 2017 was 24.9%, compared with 19.8% in the third quarter of 2016 and 22.3% in the previous quarter. The improved year-over-year operating margin was mainly attributable to the improved blended RevPAR.

Net income attributable to China Lodging Group, Limited for the third quarter of 2017 was RMB470.1 million (US$70.7 million), as 19.8% of net revenues, compared to RMB293.9 million, as 16.6% of net revenues in the third quarter of 2016 and RMB389.6 million, as 19.6% of net revenues in the previous quarter. This demonstrated a 60.0% year-over-year increase and a 20.6% sequential increase. The year-over-year and sequential increases were mainly attributable to the Company's expanded hotel network, the improved blended RevPAR, and the acquisition of Crystal Orange. 

Basic and diluted earnings per share/ADS. For the third quarter of 2017, basic earnings per share were RMB1.68 (US$0.25) and diluted earnings per share were RMB1.62 (US$0.24); basic earnings per ADS were RMB6.72 (US$1.01) and diluted earnings per ADS were RMB6.50 (US$0.98). For the third quarter of 2017, excluding share-based compensation expenses, adjusted basic earnings per share (non-GAAP) were RMB1.74 (US$0.26) and adjusted diluted earnings per share (non-GAAP) were RMB1.68 (US$0.25); adjusted basic earnings per ADS (non-GAAP) were RMB6.94 (US$1.04) and adjusted diluted earnings per ADS (non-GAAP) were RMB6.71 (US$1.01).

EBITDA (non-GAAP) for the third quarter of 2017 was RMB849.6 million (US$127.7 million), as 35.8% of net revenues, compared with RMB546.7 million, as 30.8% of net revenues in the third quarter of 2016 and RMB703.1 million, as 35.3% of net revenues in the previous quarter. This demonstrated a 55.4% year-over-year increase and a 20.8% sequential increase. 

Cash flow. Operating cash inflow for the third quarter of 2017 was RMB888.5 million (US$133.5 million). Investing cash outflow for the third quarter of 2017 was RMB519.9 million (US$78.1 million).

Cash and cash equivalents and Restricted cash. As of September 30, 2017, the Company had a total balance of cash and cash equivalents and restricted cash of RMB3,826.6 million (US$575.1 million).

Debt financing. As of September 30, 2017, the Company had a total loan balance of RMB3,716.7 million (US$558.6 million), including a syndicated loan of US$500.0 million for the acquisition of Crystal Orange, which was drawn down in May 2017.

Guidance
For the fourth quarter of 2017, the Company expects net revenues to grow 29% to 32% year-over-year. For the full year of 2017, the Company projects net revenues growth in the range of 24% to 25%.

The Company reaffirms gross opening of approximately 500 hotels in 2017, on top of the 138 hotels added to its network through the Crystal Orange acquisition. The Company anticipates to increase the gross opening to 650-700 hotels in 2018, 60%-65% of which are midscale and upscale hotels. 

The above forecast reflects the Company's current and preliminary view, which is subject to change.

Conference Call
China Lodging Group's management will host a conference call at 8 p.m. ET, Tuesday, November 28, 2017 (or 9 a.m. on Wednesday, November 29, 2017 in the Shanghai/Hong Kong time zone) following the announcement. To participate in the event by telephone, please dial +1 (855) 500 8701 (for callers in the US), +86 400 120 0654 (for callers in China Mainland), +852 3018 6776 (for callers in Hong Kong) or +65 6713 5440 (for callers outside of the US, China Mainland, and Hong Kong) and enter pass code 7888218.  Please dial in approximately 10 minutes before the scheduled time of the call.

A recording of the conference call will be available after the conclusion of the conference call through December 6, 2017. Please dial +1 (855) 452 5696 (for callers in the US) or +61 2 9003 4211 (for callers outside the US) and entering pass code 7888218.  

The conference call will also be webcast live over the Internet and can be accessed by all interested parties at the Company's Web site, http://ir.huazhu.com.

Use of Non-GAAP Financial Measures
To supplement the Company's unaudited consolidated financial results presented in accordance with U.S. GAAP, the Company uses the following non-GAAP measures defined as non-GAAP financial measures by the SEC: hotel operating costs excluding share-based compensation expenses; general and administrative expenses excluding share-based compensation expenses; selling and marketing expenses excluding share-based compensation expenses; adjusted income from operations excluding share-based compensation expenses; adjusted net income attributable to China Lodging Group, Limited excluding share-based compensation expenses; adjusted basic and diluted earnings per share and per ADS excluding share-based compensation expenses; EBITDA; and adjusted EBITDA excluding share-based compensation expenses. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliations of GAAP and non-GAAP results" set forth at the end of this release. The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding Company performance by excluding share-based compensation expenses that may not be indicative of Company operating performance. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing Company performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to the Company's historical performance. The Company believes these non-GAAP financial measures are also useful to investors in allowing for greater transparency with respect to supplemental information used regularly by Company management in financial and operational decision-making. A limitation of using non-GAAP financial measures excluding share-based compensation expenses is that share-based compensation expenses have been — and will continue to be — a significant recurring expense in the Company's business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.   

The Company believes that EBITDA is a useful financial metric to assess the operating and financial performance before the impact of investing and financing transactions and income taxes, given the significant investments that the Company has made in leasehold improvements, depreciation and amortization expense that comprise a significant portion of the Company's cost structure. In addition, the Company believes that EBITDA is widely used by other companies in the lodging industry and may be used by investors as a measure of financial performance. The Company believes that EBITDA will provide investors with a useful tool for comparability between periods because it eliminates depreciation and amortization expense attributable to capital expenditures. The Company also uses adjusted EBITDA, which is defined as EBITDA before share-based compensation expenses, to assess operating results of the hotels in operation. The Company believes that the exclusion of share-based compensation expenses helps facilitate year-on-year comparison of the results of operations as the share-based compensation expenses may not be indicative of Company operating performance. Therefore, the Company believes adjusted EBITDA more closely reflects the performance capability of hotels. The presentation of EBITDA and adjusted EBITDA should not be construed as an indication that the Company's future results will be unaffected by other charges and gains considered to be outside the ordinary course of business.

The use of EBITDA and adjusted EBITDA has certain limitations. Depreciation and amortization expense for various long-term assets (including land use rights), income tax, interest expense and interest income have been and will be incurred and are not reflected in the presentation of EBITDA. Share-based compensation expenses have been and will be incurred and are not reflected in the presentation of adjusted EBITDA. Each of these items should also be considered in the overall evaluation of the results. The Company compensates for these limitations by providing the relevant disclosure of the depreciation and amortization, interest income, interest expense, income tax expense, share-based compensation expenses and other relevant items both in the reconciliations to the U.S. GAAP financial measures and in the consolidated financial statements, all of which should be considered when evaluating the performance of the Company.

The terms EBITDA and adjusted EBITDA are not defined under U.S. GAAP, and neither EBITDA nor adjusted EBITDA is a measure of net income, operating income, operating performance or liquidity presented in accordance with U.S. GAAP. When assessing the operating and financial performance, investors should not consider these data in isolation or as a substitute for the Company's net income, operating income or any other operating performance measure that is calculated in accordance with U.S. GAAP. In addition, the Company's EBITDA or adjusted EBITDA may not be comparable to EBITDA or adjusted EBITDA — or similarly titled measures utilized by other companies — since such other companies may not calculate EBITDA or adjusted EBITDA in the same manner as the Company does.

Reconciliations of the Company's non-GAAP financial measures, including EBITDA and adjusted EBITDA, to the consolidated statement of operations information are included at the end of this press release.

About China Lodging Group, Limited
China Lodging Group, Limited is a leading hotel operator and franchisor in China. As of September 30, 2017, the Company had 3,656 hotels or 372,464 rooms in operation in 375 cities. With a primary focus on economy and midscale hotel segments, China Lodging Group's brands include Hi Inn, HanTing Hotel, Elan Hotel, HanTing Plus Hotel, JI Hotel, Starway Hotel, Manxin Hotel, Joya Hotel, Orange Hotel, Orange Hotel Select, Crystal Orange Hotel, and VUE Hotel, . The Company also has the rights as master franchisee for Mercure, Ibis and Ibis Styles, and co-development rights for Grand Mercure and Novotel, in Pan-China region.

The Company's business includes leased and owned, manachised and franchised models. Under the lease and ownership model, the Company directly operates hotels typically located on leased or owned properties. Under the manachise model, the Company manages manachised hotels through the on-site hotel managers it appoints and collects fees from franchisees. Under the franchise model, the Company provides training, reservation and support services to the franchised hotels and collects fees from franchisees but does not appoint on-site hotel managers. The Company applies a consistent standard and platform across all of its hotels. The Company applies a consistent standard and platform across all of its hotels. As of September 30, 2017, China Lodging Group operates 23 percent of its hotel rooms under lease and ownership model, 77 percent under manachise and franchise models.

For more information, please visit the Company's website: http://ir.huazhu.com.  

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: The information in this release contains forward-looking statements which involve risks and uncertainties, including statements regarding the Company's capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements, which may be identified by terminology such as "may," "should," "will," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," "forecast," "project," or "continue," the negative of such terms or other comparable terminology. Readers should not rely on forward-looking statements as predictions of future events or results. Any or all of the Company's forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions, risks and uncertainties and other factors which could cause actual events or results to be materially different from those expressed or implied in the forward-looking statements. In evaluating these statements, readers should consider various factors, including the anticipated growth strategies of the Company, the future results of operations and financial condition of the Company, the economic conditions of China, the regulatory environment in China, the Company's ability to attract customers and leverage its brands, trends and competition in the lodging industry, the expected growth of the lodging market in China and other factors and risks outlined in the Company's filings with the Securities and Exchange Commission, including its annual report on Form 20-F and other filings. These factors may cause the Company's actual results to differ materially from any forward-looking statement. In addition, new factors emerge from time to time and it is not possible for the Company to predict all factors that may cause actual results to differ materially from those contained in any forward-looking statements. Any projections in this release are based on limited information currently available to the Company, which is subject to change. This release also contains statements or projections that are based upon information available to the public, as well as other information from sources which the Company believes to be reliable, but it is not guaranteed by the Company to be accurate, nor does the Company purport it to be complete. The Company disclaims any obligation to publicly update any forward-looking statements to reflect events or circumstances after the date of this document, except as required by applicable law. 

_________________________________ 

1 The conversion of Renminbi ("RMB") into United States dollars ("US$") is based on the exchange rate of US$1.00=RMB6.6533 on September 29, 2017 as set forth in H.10 statistical release of the U.S. Federal Reserve Board and available at http://www.federalreserve.gov/releases/h10/hist/dat00_ch.htm.

2 Each ADS represents four of the Company's ordinary shares. 

3 As of September 30, 2017, the Company is still in the process of evaluating the purchase price allocation for Crystal Orange. Hence, the financial results for the second and third quarters of 2017 are based on the preliminary numbers for the purchase price allocation and are subject to change upon finalization.


---Financial Tables and Operational Data Follow—

 
China Lodging Group, Limited
Unaudited Condensed Consolidated Balance Sheets
 December 31, 2016 September 30, 2017
 RMB RMB  US$ 
 (in thousands)
         
ASSETS        
Current assets:        
Cash and cash equivalents3,235,007  3,333,108  500,971 
Restricted cash500  493,512  74,176 
Short-term investments-  107,729  16,192 
Accounts receivable, net141,649  171,536  25,782 
Loan receivables22,410  86,691  13,030 
Amounts due from related parties98,453  88,544  13,308 
Prepaid rent446,127  528,381  79,416 
Inventories21,606  27,712  4,164 
Other current assets208,929  256,941  38,619 
Total current assets4,174,681  5,094,154  765,658 
         
Property and equipment, net3,710,468  4,478,055  673,058 
Intangible assets, net342,694  1,800,250  270,580 
Land use rights145,521  141,467  21,263 
Long-term investments1,064,321  1,485,610  223,289 
Goodwill171,504  2,136,710  321,150 
Loan receivables7,269  37,021  5,564 
Other assets200,492  369,351  55,515 
Deferred tax assets176,414  236,827  35,595 
Total assets9,993,364  15,779,445  2,371,672 
         
LIABILITIES AND EQUITY        
Current liabilities:        
Short-term debt298,291  132,738  19,951 
Long-term debt, current portion-  133  20 
Accounts payable584,731  656,553  98,681 
Amounts due to related parties11,058  32,656  4,908 
Salary and welfare payables274,259  203,486  30,584 
Deferred revenue749,793  822,586  123,636 
Accrued expenses and other current liabilities895,837  1,237,853  186,051 
Dividends payable-  300,000  45,090 
Income tax payable152,112  232,722  34,979 
Total current liabilities2,966,081  3,618,727  543,900 
         
Long-term debt-  3,583,793  538,649 
Deferred rent1,023,843  1,280,479  192,458 
Deferred revenue166,963  167,349  25,153 
Other long-term liabilities323,991  363,226  54,593 
Deferred tax liabilities96,329  454,696  68,341 
Total liabilities4,577,207  9,468,270  1,423,094 
         
Equity:        
  Ordinary shares204  205  31 
  Treasury shares(107,331) (107,331) (16,132)
  Additional paid-in capital3,699,056  3,779,065  567,999 
  Retained earnings1,812,174  2,519,957  378,753 
  Accumulated other comprehensive income (loss)(4,503) 98,063  14,739 
Total China Lodging Group, Limited shareholders' equity5,399,600  6,289,959  945,390 
  Noncontrolling interest16,557  21,216  3,188 
Total equity5,416,157  6,311,175  948,578 
Total liabilities and equity9,993,364  15,779,445  2,371,672 


 
China Lodging Group, Limited
Unaudited Condensed Consolidated Statements of Comprehensive Income
 Quarter Ended
 September 30, 2016
 June 30, 2017
 September 30, 2017
 RMB
 RMB
 RMB
 US$
 (in thousands, except per share and per ADS data)
Revenues:                   
Leased and owned hotels1,390,334  1,543,117  1,857,846  279,237 
Manachised and franchised hotels373,239  435,552  506,720  76,161 
Others10,233  10,512  8,445  1,269 
Net revenues1,773,806  1,989,181  2,373,011  356,667 
                    
Operating costs and expenses:    
Hotel operating costs:    
Rents (458,946) (502,353) (533,285) (80,153)
Utilities (85,953) (69,942) (104,284) (15,674)
Personnel costs (282,911) (329,025) (366,019) (55,013)
Depreciation and amortization (171,089) (185,419) (214,069) (32,175)
Consumables, food and beverage (122,071) (137,139) (150,458) (22,614)
Others (128,731) (124,392) (135,955) (20,434)
Total hotel operating costs (1,249,701) (1,348,270) (1,504,070) (226,063)
Other operating costs (2,258) (3,739) (4,816) (725)
Selling and marketing expenses (31,264) (45,262) (51,561) (7,750)
General and administrative expenses (123,233) (135,689) (153,725) (23,105)
Pre-opening expenses (16,710) (43,134) (67,632) (10,165)
Total operating costs and expenses(1,423,166) (1,576,094) (1,781,804) (267,808)
Other operating income (expense), net399  29,619  137  21 
Income from operations351,039  442,706  591,344  88,880 
Interest income 19,154  21,792  31,807  4,781 
Interest expense (2,158) (15,870) (34,797) (5,230)
Other income, net 11,577  74,312  51,123  7,684 
Foreign exchange gain (loss) 1,800  (4,577) (5,833) (877)
Income before income taxes 381,412  518,363  633,644  95,238 
Income tax expense (94,204) (130,183) (158,446) (23,815)
Income (Loss) from equity method investments 2,277  (978) (3,279) (493)
Net income 289,485  387,202  471,919  70,930 
Less: net loss (income) attributable to noncontrolling interest 4,384  2,437  (1,858) (279)
Net income attributable to China Lodging Group, Limited 293,869  389,639  470,061  70,651 
                    
Other comprehensive income    
Unrealized securities holding gains (losses), net of tax 10,395  (13,511) (5,757) (865)
Reclassification of gains realized to net income, net of tax -   (1,545) -  - 
Foreign currency translation adjustments, net of tax (1,547) 46,190  71,077  10,683 
Comprehensive income 298,333  418,336  537,239  80,748 
Comprehensive loss (income) attributable to noncontrolling interest 4,384  2,437  (1,858) (279)
Comprehensive income attributable to China Lodging Group, Limited 302,717  420,773  535,381  80,469 
                    
Earnings per share:    
Basic 1.06  1.40  1.68  0.25 
Diluted 1.03  1.35  1.62  0.24 
     
Earnings per ADS:    
Basic 4.24  5.58  6.72  1.01 
Diluted 4.12  5.41  6.50  0.98 
     
Weighted average number of shares used in computation:  
Basic 277,169  279,101  279,631  279,631 
Diluted 285,426  288,316  289,317  289,317 


 
China Lodging Group, Limited
Unaudited Condensed Consolidated Statements of Cash Flows
 Quarter Ended
 September 30, 2016
 June 30, 2017
 September 30, 2017
 RMB
 RMB
 RMB
 US$
 (in thousands)
Operating activities:               
Net income289,485  387,202  471,919  70,930 
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation11,813  16,021  15,302  2,300 
Depreciation and amortization175,637  189,210  218,081  32,778 
Deferred taxes6,426  (916) 2,823  424 
Bad debt expenses(964) 601  -  - 
Deferred rent20,923  48,485  42,063  6,322 
Loss from disposal of property and equipment1,252  11,388  -  - 
Impairment loss51,457  44,439  32,294  4,854 
Loss (Income) from equity method investments(2,277) 978  3,279  493 
Investment loss (gain)1,989  (37,773) (50,781) (7,632)
Excess tax benefit from share-based
compensation
(3,656) (8,200) (9,681) (1,455)
Changes in operating assets and liabilities, net of effect of acquisitions:
  Accounts receivable(4,114) (4,904) (7,798) (1,172)
  Prepaid rent(22,304) 3,770  (25,934) (3,898)
  Inventories(565) (4,697) 5,527  830 
  Amounts due from related parties1  (3,553) (6,465) (972)
  Other current assets(21,681) 4,362  (16,828) (2,529)
  Other assets(6,451) (14,403) (23,696) (3,562)
  Accounts payable(1,107) 1,432  11,114  1,670 
  Amounts due to related parties1,764  (752) 311  47 
  Salary and welfare payables(27,150) 57,289  (42,850) (6,440)
  Deferred revenue(42,477) (14,048) 23,457  3,526 
  Accrued expenses and other current liabilities126,971  35,123  186,092  27,970 
  Income tax payable54,895  83,089  47,266  7,104 
  Other long-term liabilities10,319  11,886  12,984  1,952 
Net cash provided by operating activities620,186  806,029  888,479  133,540 
                
Investing activities:    
Purchases of property and equipment(108,719) (156,840) (210,235) (31,599)
Purchases of intangibles(5,122) (247) (2,702) (406)
Acquisitions, net of cash received(2,926) (2,980,236) -  - 
Purchase of long-term investments(17,130) (216,917) (175,300) (26,348)
Proceeds from maturity/sale of long-term
investments
4,553  87,593  110  17 
Payment for shareholder loan to joint venture(81) (775) (30,370) (4,565)
Collection of shareholder loan from joint venture9,285  48,500  71,355  10,725 
Purchase of short-term investments-  -  (95,802) (14,399)
Payment for the origination of loan receivables(3,020) (47,000) (75,992) (11,422)
Proceeds from collection of loan receivables5,401  4,526  25,021  3,761 
Increase in restricted cash358,343  (467,000) (26,012) (3,910)
Net cash provided by (used in) investing activities240,584  (3,728,396) (519,927) (78,146)
                
     
China Lodging Group, Limited 
Unaudited Condensed Consolidated Statements of Cash Flows 
 Quarter Ended
  September 30, 2016 June 30, 2017  September 30, 2017 
 RMB RMB RMB US$
Financing activities:               
Net proceeds from issuance of ordinary shares upon exercise of options3,299  4,428  580  87 
Proceeds from short-term debt-  135,488  -  - 
Repayment of short-term debt(332,555) (266,764) (26,913) (4,045)
Proceeds from long-term debt-  3,633,174  -  - 
Funds advanced from noncontrolling interest
holders
-  13,950  11,913  1,791 
Repayment of funds advanced from
noncontrolling interest holders
-  (1,677) (7,053) (1,060)
Contribution from noncontrolling interest holders800  6,631  890  134 
Dividends paid to noncontrolling interest holders(1,935) (1,680) (240) (36)
Excess tax benefit from share-based compensation3,656  8,200  9,681  1,455 
Net cash provided by (used in) financing activities(326,735) 3,531,750  (11,142) (1,674)
                
Effect of exchange rate changes on cash and cash
equivalents
1,444  (4,500) (4,677) (703)
Net increase in cash and cash equivalents535,479  604,883  352,733  53,017 
Cash and cash equivalents at the beginning of the period2,466,352  2,375,492  2,980,375  447,954 
Cash and cash equivalents at the end of the period3,001,831  2,980,375  3,333,108  500,971 


 
China Lodging Group, Limited
Unaudited Reconciliation of GAAP and Non-GAAP Results
 Quarter Ended September 30, 2017
 GAAP Result % of Net Revenues
 Share-based Compensation % of Net Revenues
 Non-GAAP Result % of Net Revenues
 RMB    RMB    RMB   
 (in thousands)
Hotel operating costs1,504,070 63.4% 4,460 0.2% 1,499,610 63.2%
Other operating costs4,816 0.2% - 0.0% 4,816 0.2%
Selling and marketing expenses51,561 2.2% 321 0.0% 51,240 2.2%
General and administrative expenses153,725 6.5% 10,521 0.4% 143,204 6.1%
Pre-opening expenses67,632 2.9% - 0.0% 67,632 2.9%
Total operating costs and expenses1,781,804 75.2% 15,302 0.6% 1,766,502 74.6%
Income from operations591,344 24.9% 15,302 0.6% 606,646 25.5%
            
 Quarter Ended September 30, 2017
 GAAP Result % of Net Revenues
 Share-based Compensation % of Net Revenues
 Non-GAAP Result % of Net Revenues
 US$  US$  US$  
 (in thousands)
Hotel operating costs226,063 63.4% 670 0.2% 225,393 63.2%
Other operating costs725 0.2% - 0.0% 725 0.2%
Selling and marketing expenses7,750 2.2% 48 0.0% 7,702 2.2%
General and administrative expenses23,105 6.5% 1,582 0.4% 21,523 6.1%
Pre-opening expenses10,165 2.9% - 0.0% 10,165 2.9%
Total operating costs and expenses267,808 75.2% 2,300 0.6% 265,508 74.6%
Income from operations88,880 24.9% 2,300 0.6% 91,180 25.5%
               
 Quarter Ended June 30, 2017
 GAAP Result % of Net Revenues
 Share-based Compensation % of Net Revenues
 Non-GAAP Result % of Net Revenues
 RMB  RMB  RMB  
 (in thousands)
Hotel operating costs 1,348,270 67.8%  4,502 0.2%  1,343,768 67.6%
Other operating costs 3,739 0.2%  -  0.0%  3,739 0.2%
Selling and marketing expenses 45,262 2.3%  371 0.0%  44,891 2.3%
General and administrative expenses135,689  6.8%  11,148 0.6%   124,541  6.2%
Pre-opening expenses 43,134 2.2% - 0.0%  43,134 2.2%
Total operating costs and expenses1,576,094 79.3%  16,021 0.8%   1,560,073  78.5%
Income from operations  442,706  22.3%  16,021 0.8%   458,727  23.1%
               
 Quarter Ended September 30, 2016
 GAAP Result % of Net Revenues
 Share-based Compensation % of Net Revenues
 Non-GAAP Result % of Net Revenues
 RMB  RMB  RMB  
 (in thousands)
Hotel operating costs1,249,701 70.5% 3,866 0.2% 1,245,835 70.3%
Other operating costs2,258 0.1% - 0.0%  2,258 0.1%
Selling and marketing expenses31,264 1.8% 244 0.0%  31,020 1.8%
General and administrative expenses123,233 6.9% 7,703 0.4%  115,530 6.5%
Pre-opening expenses16,710 0.9% - 0.0%  16,710 0.9%
Total operating costs and expenses1,423,166 80.2% 11,813 0.6%  1,411,353 79.6%
Income from operations351,039 19.8% 11,813 0.6%  362,852 20.4%


 
China Lodging Group, Limited
Unaudited Reconciliation of GAAP and Non-GAAP Results
 Quarter Ended
 September 30, 2016
 June 30, 2017
 September 30, 2017
 RMB
 RMB
 RMB
 US$
 (in thousands, except per share and per ADS data)
Net income attributable to China Lodging Group, Limited (GAAP)293,869  389,639  470,061  70,651 
Share-based compensation expenses11,813  16,021  15,302  2,300 
Adjusted net income attributable to China Lodging Group, Limited (non-GAAP)305,682  405,660  485,363  72,951 
                
Earnings per share (GAAP)               
  Basic1.06  1.40  1.68  0.25 
  Diluted1.03  1.35  1.62  0.24 
                
Earnings per ADS (GAAP)               
  Basic4.24  5.58  6.72  1.01 
  Diluted4.12  5.41  6.50  0.98 
                
Adjusted earnings per share (non-GAAP)               
  Basic1.10  1.45  1.74  0.26 
  Diluted1.07  1.41  1.68  0.25 
                
Adjusted earnings per ADS (non-GAAP)               
  Basic4.41  5.81  6.94  1.04 
  Diluted4.28  5.63  6.71  1.01 
                
Weighted average number of shares used in computation               
  Basic277,169  279,101  279,631
  279,631 
  Diluted285,426  288,316  289,317
  289,317 
     
 Quarter Ended
 September 30, 2016
 June 30, 2017
 September 30, 2017
 RMB
 RMB
 RMB
 US$
 (in thousands)
Net income attributable to China Lodging Group, Limited (GAAP)293,869  389,639  470,061  70,651 
Interest income (19,154)  (21,792) (31,807) (4,781)
Interest expense 2,158   15,870  34,797  5,230 
Income tax expense 94,204  130,183  158,446  23,815 
Depreciation and amortization 175,637   189,210  218,081  32,778 
EBITDA (non-GAAP) 546,714    703,110   849,578  127,693 
Share-based compensation 11,813   16,021  15,302  2,300 
Adjusted EBITDA (non-GAAP) 558,527  719,131  864,880  129,993 
            


China Lodging Group, Limited
 
Operational Data     
 As of  
 September 30, June 30,September 30, 
 201620172017 
Total hotels in operation:  3,198   3,541   3,656  
  Leased and owned hotels  625   686   684  
  Manachised hotels  2,399   2,654   2,766  
  Franchised hotels  174   201   206  
Total hotel rooms in operation  322,785   359,530   372,464  
  Leased and owned hotels77,158   86,232 86,568  
  Manachised hotels229,565   253,469 265,701  
  Franchised hotels  16,062   19,829   20,195  
Number of cities  365 369 375  
     
     
 For the quarter ended 
 September 30,June 30, September 30, 
 201620172017 
Occupancy rate (as a percentage)    
  Leased and owned hotels90.0%90.8%92.8% 
  Manachised hotels89.3%90.8%94.1% 
  Franchised hotels74.1%74.4%78.9% 
  Blended88.9%90.1%93.1% 
Average daily room rate (in RMB)    
  Leased and owned hotels217 232 257  
  Manachised hotels186 188 204  
  Franchised hotels194 203 236  
  Blended194 199 218  
RevPAR (in RMB)    
  Leased and owned hotels195 211 238  
  Manachised hotels166 171 192  
  Franchised hotels144 151 186  
  Blended173 179 203  
     
     
Same-hotel Operational Data: like-for-like performance for hotels in operation for at least 18 months during the current quarter  
 As of and for the quarter ended  
 September 30,   
 20162017  
Total   2,603   2,603   
  Leased hotels  579   579   
  Manachised and franchised hotels  2,024   2,024   
Occupancy rate (as a percentage)91%96%  
Average daily room rate (in RMB)194 202   
RevPAR (in RMB)177 193   


        
Same-hotel operational data by segment       
 Number of hotels in operationSame-hotel RevPAR Same-hotel ADR Same-hotel Occupancy 
 As ofFor the quarter ended For the quarter ended For the quarter ended 
 September 30,September 30,yoy growthSeptember 30,yoy growthSeptember 30,yoy growth
 2016201720162017201620172016 2017 
Economy hotels2,3162,3161621779.4%1761834.3%92%96%4.5%
  Leased and owned hotels4984981691859.6%1861965.3%91%94%3.6%
  Manachised and franchised hotels1,8181,8181591749.3%1721793.9%92%97%4.8%
Midscale and upscale hotels2872872652909.5%3033195.2%87%91%3.6%
  Leased hotels81813203447.5%3463655.4%92%94%1.8%
  Manachised and franchised hotels20620623325911.0%2762915.3%84%89%4.6%
Total2,6032,6031771939.5%1942024.5%91%96%4.4%
 

 

Hotel breakdown by segment   
   
 Number of hotels in operation 
 Net added As of  
 in Q3 2017September 30, 2017 
Economy hotels  46   2,939  
HanTing Hotel  19  2,232 
Leased hotels  (8)  465 
Manachised hotels  27  1,763 
Franchised hotels  -  4 
Hi Inn  (1)  394 
Leased hotels  (3)  32 
Manachised hotels  2  316 
Franchised hotels  -  46 
Elan Hotel  18  213 
Manachised hotels  18  180 
Franchised hotels  -  33 
ibis Hotel  11  91 
Leased and owned hotels  1  16 
Manachised hotels  11  29 
Franchised hotels  (1)  46 
Orange Hotel  (1)  9 
Leased hotels  (1)  7 
Manachised hotels  -  1 
Franchised hotels  -  1 
Midscale and upscale hotels  69   717  
JI Hotel  37  364 
Leased hotels  6  91 
Manachised hotels  31  270 
Franchised hotels  -  3 
Starway Hotel  14  162 
Leased hotels  -  2 
Manachised hotels  14  126 
Franchised hotels  -  34 
Joya Hotel  -  6 
Leased hotels  -  3 
Manachised hotels  -  3 
Manxin Hotels & Resorts  4  8 
Leased hotels  1  2 
Manachised hotels  1  3 
Franchised hotels  2  3 
HanTing Plus Hotel  1  1 
Manachised hotels  1  1 
ibis Styles Hotel  1  11 
Manachised hotels  1  7 
Franchised hotels  -  4 
Mercure Hotel  1  19 
Leased hotels  -  2 
Manachised hotels(1)  14 
Franchised hotels  2  3 
Novotel Hotel  2  4 
Manachised hotels  2  3 
Franchised hotels  -  1 
Grand Mercure  -  3 
Leased hotels  -  1 
Franchised hotels  -  2 
Orange Select  7  97 
Leased hotels  2  44 
Manachised hotels  3  35 
Franchised hotels  2  18 
Crystal Orange  2  42 
Leased hotels  -  19 
Manachised hotels  2  15 
Franchised hotels  -  8 
Total  115   3,656  
    

Contact Information

Investor Relations
Tel: +86 (21) 6195 9561  
Email: ir@huazhu.com
http://ir.huazhu.com


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